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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER Present appeal by the assessee has been filed by assessee against the order dated 31/03/2022 u/s. 250 passed by the National Faceless Appeal Centre (NFAC), Delhi relating to Assessment Year 2019-20 on following grounds of appeal:
1. Disallowance towards delayed remittance of employees' contribution to Provident Fund ["PF"] under section 36(1)(va) of the Act Page 2 of 1.1. The Learned Commissioner of Income Tax (Appeals) ['CIT(A)"] and Learned Assistant Director of Income tax, CPC ["ADIT, CPC"] have erred in disallowing the delayed remittance of the employee's contribution to PF without appreciating that the Appellant had remitted the same before the due date for filing of return of income ["R01"] under section 139(1) of the Act. 1.2. The orders of the Learned CIT(A) and Learned ADIT, CPC are per incuriam and are liable to be quashed. The Learned CIT(A) and Learned ADIT, CPC ought to have followed the binding judgments of the jurisdictional Karnataka High Court, which squarely cover the facts of the present case and have held that in a circumstance where employee's contribution to PF is remitted before the due date of filing ROI, the same cannot be disallowed. 1.3. The Learned CIT(A) has grossly erred in distinguishing the Hon'ble Supreme Court's judgement in the case of CIT v. Vinay Cement Ltd. [2007] 213 CTR 268 (Supreme Court) relied upon by the Appellant, by incorrectly quoting non- existent extracts of judgement in page 17 and 18 of its order. 1.4. The Learned CIT(A) has erred in placing reliance on judgements of various High Courts/ Tribunals of other States which only have a persuasive effect vis-a-vis the favourable judgements of the jurisdictional Karnataka High Court which is binding on the subordinate courts/ Tribunals/ authorities within its jurisdiction. 1.5. The Learned CIT(A) in making the disallowance has grossly erred in placing reliance on the amendment vide Finance Act, 2021 to section 36(1)(va) of the Act and section 43B of the Act which is not applicable to the captioned AY. The Learned CIT(A) while having relied upon the memorandum explaining the Finance Bill, 2021 ought to have appreciated that said memorandum clearly specifies that the aforesaid amendment applies to AY 2021-22 and subsequent AYs. 1.6. The Learned CIT(A) failed to appreciate the recent judgements of the Jurisdictional Bangalore Tribunal have also upheld that the amendment vide Finance Act, 2021 to section 43B of the Act and section 36(1)(va) of the Act, is prospective in nature and applicable with effect from AY 2021-22. 1.7 The Learned CIT(A) erred in relying upon judicial precedents which are not relevant to the facts of the present case. 1.8. Notwithstanding and without prejudice to the above, the Learned CIT(A) failed to appreciate that the amount of delayed remittance of employee's contribution to PF for Page 3 of AY was INR 49,388/- as against INR 4,06,910/- specified in Learned CIT(A)'s order. 2. Disallowance under section 37 of the Act on account of inconsistency in addition made under section 37 of the Act in ROI vis-à-vis disclosure made in Tax Audit Report ["TAR"] 2.1 The Learned CIT(A) grossly erred in not adjudicating on the grounds of appeal raised by the Appellant against adjustment of INR 1,82,71,882 made by the Learned ADIT, CPC towards inconsistency in disallowance in ROI visa-vis disclosure in TAR. The Learned CIT(A) ought to have appreciated the submissions made by the Appellant substantiating the inconsistency. 2.2 The Learned ADIT, CPC and the Learned CIT(A) ought to have appreciated that the amount disclosed in clause 21(a) of TAR was entirely disallowed by the Appellant in the ROI and further adjustment would result in a double disallowance. The Appellant craves for leave to add, to alter, to amend, to rescind or to modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided.”
2. The brief facts of the case are as follows: The assessee is a private limited company in the business of readymade garments, apparel, clothing etc. For the assessment year 2019-20, return of income was filed on 29/11/2019 declaring income of Rs. 35,46,81,290/-. The return was processed u/s 143(1) of the I.T.Act. In the intimation issued u/s 143(1) of the I.T.Act, the CPC disallowed the employees' contribution to PF and ESI to the tune of Rs. 1,82,71,881/-. The reason for making the disallowance was that the assessee did not remit the employees' contribution to PF and ESI within the due date specified under the respective Acts.
3. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), it was submitted that the assessee remitted the employees contribution to PF and ESI before the due date of filing of the return u/s 139(1) of the I.T.Act and in view of the judgment of the Hon'ble jurisdictional High Court Pr.CIT vs. Hind Filter Ltd. in of 2015. The assessee is entitled to deduction of the same. The Ld.CIT(A), however, dismissed the appeal of the assessee by relying on decision of Hon’ble Gujarat High Court in case of Gujarat Road Transport Corporation reported in (2014) 41 taxmann.com 100. The CIT(A) noticed the difference between the employees' contribution and the employer's contribution and held insofar as the employees' contribution to ESI and PF, the same need to be remitted within the due date as mentioned in the respective Acts. The CIT(A) also relied on the amendment brought about to section 36(1)(va) and 43B of the I.T.Act.
4. Aggrieved, the assessee has filed this appeal before the Tribunal. 4.1 The Ld.AR submitted that an identical issue is decided in favour of the assessee by the coordinate Bench of this Tribunal in following cases: M/s. The Continental Restaurant & Café Co. v. ITO in ITA No.388/Bang/2021 (order dated 11.10.2021) M/s. Nirmal Enviro Solutions Pvt. Ltd. vs. DCIT in ITA No. 315/Bang/2021 (order dated 12.10.2021) Shri Gopalkrishna Aswini Kumar vs. ACIT in ITA No. 359/Bang/2021 (order dated 13.10.2021) 5. The learned Departmental Representative supported the orders of the Income Tax Authorities. 6. We have heard rival submissions and perused the material on record. An identical issue was considered by the Tribunal in the Page 5 of The Continental Restaurant & Café Co. v. ITO (supra). The relevant finding of the Tribunal reads as follows:- "7. I have heard rival submissions and perused the material on record. Admittedly, the assessee has not remitted the employees' contribution of PF of Rs.1,06,190 and ESI of Rs.16,055 totaling to Rs.1,22,245 before the due date specified under the respective Act. However, the assessee had paid the same before the due date of filing of the return u/s 139(1) of the I.T.Act. The Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. v. DCIT reported in 366 ITR 408 (Kar.) has categorically held that the assessee would be entitled to deduction of employees' contribution to PF and ESI provided the payment was made prior to the due date of filing of return of income u/s 139(1) of the I.T.Act. The Hon'ble jurisdictional High Court differed with the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corporation reported in 366 ITR 170 (Guj.). In holding so, the Hon'ble High Court was considering following substantial question of law:- "Whether in law, the Tribunal was justified in affirming the finding of Assessing Officer in denying the appellant's claim of deductions of the employees contribution to PF/ESI alleging that the payment was not made by the appellant in accordance with the provisions u/s 36(1)(va) of the I.T.Act?" 7.1 In deciding the above substantial question of law, the Hon'ble High Court rendered the following findings:- "20. Paragraph-38 of the PF Scheme provides for Mode of payment of contributions. As provided in sub para (1), the employer shall, before paying the member, his wages, deduct his contribution from his wages and deposit the same together with his own contribution and other charges as stipulated therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of every month pay. It is clear that the word "contribution" used in Clause (b) of Section 43B of the IT Act means the contribution of the employer and the employee. That being so, if the contribution is made on or before the due date for furnishing the return of income under sub- section (1) of Section 139 of the IT Act is made, the employer is entitled for deduction.
The submission of Mr.Aravind, learned counsel for the revenue that if the employer fails to deduct the employees' contribution on or before the due date, contemplated under the provisions of the PF Act and the PF Scheme, that would have to be treated as income within the meaning of Section 2(24)(x) of the IT Act and in which case, the assessee is liable to pay tax on the said amount treating that as his income, deserves to be rejected.
With respect, we find it difficult to endorse the view taken by the Gujarat High Court. WE agree with the view taken by this Court in W.A.No.4077/2013.
In the result, the appeal is allowed and the substantial question of law framed by us is answered in favour of the appellant-assessee and against the respondent-revenue. There shall be no order as to costs." 7.2 The further question is whether the amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 is clarificatory and declaratory in nature. The Hon'ble Supreme Court in the recent judgment in the case of M.M.Aqua Technologies Limited v. CIT reported in (2021) 436 ITR 582 (SC) had held that retrospective provision in a taxing Act which is "for the removal of doubts" cannot be presumed to be retrospective, if it alters or changes the law as it earlier stood (page 597). In this case, in view of the judgment of the Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. v. DCIT (supra) the assessee would have been entitled to deduction of employees' contribution of PF and ESI if the payment was made prior to due date of filing of the return of income u/s 139(1) of the I.T.Act. Therefore, the amendment brought about by the Finance Act, 2021 to section 36(1)(va) and 43B of the I.T.Act, alters the position of law adversely to the assessee. Therefore, such amendment cannot be held to be retrospective in nature. Even otherwise, the amendment has been mentioned to be effective from 01.04.2021 and will apply for and from assessment year 2021-2022 onwards. The following orders of the Tribunal had categorically held that the amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 is only prospective in nature and not retrospective. (i) Dhabriya Polywood Limited v. ACIT reported in (2021) 63 CCH 0030 Jaipur Trib. ii) NCC Limited v. ACIT reported in (2021) 63 CCH 0060 Hyd Tribunal. (iii) Indian Geotechnical Services v. ACIT in (order dated 27.08.2021). (iv) M/s.Jana Urban Services for Transformation Private Limited v. DCIT in ITA No.307/Bang/2021 (order dated 11th October, 2021) 7.3 In view of the aforesaid reasoning and the judicial pronouncements cited supra, the amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 will not have application for the relevant assessment year, namely A.Y. 2019-2020. Accordingly, I direct the A.O. to grant deduction in respect of employees' contribution to PF and ESI since the assessee has made payment before the due date of filing of the return of income u/s 139(1) of the I.T.Act, It is ordered accordingly. 8. In the result, the appeal filed by the assessee is allowed." 6.1 We also note that Hon’ble jurisdictional High Court in case of Essae Taroka (P.) Ltd. reported in (2014) 266 CTR 246 and Spectrum Consultants India (P.) Ltd. reported in (2013) 266 CTR 94 has affirmed the above view. In view of the judicial pronouncements cited supra, we hold that the amendment to section Page 7 of 36(1)(va) and 43B of the I.T. Act will not have application for the relevant assessment year, namely assessment year 2019-20. Accordingly, we direct the A.O. to grant deduction in respect of employees' contribution to PF and ESI since the assessee has made the payment before the due date of filing of return u/s 139(1) of the I.T.Act. It is ordered accordingly. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 21st July, 2022.